Oil, gas boom offers opportunities, risks

Viewpoint: USA Today (excerpted)

Hamilton Spectator

By now it’s not news that “fracking” underground shale formations — cracking them open with high-pressure jets of water, chemicals and sand — has unlocked new supplies of natural gas and oil in places such as North Dakota and Pennsylvania. What’s surprising is how big those supplies are, and how much they might change the world.

Here’s one measure: In its latest annual forecast, released last week, the Paris-based International Energy Agency says fracking means the U.S. will overtake Russia to become the world’s largest natural gas producer by 2015 and pass Saudi Arabia as the world’s largest oil producer by 2017. By 2035, the USA could become virtually energy independent. Talk about dramatic change.

So much new supply of gas is coming from shale formations that futures prices, which soared to almost $13 (all prices US) per thousand cubic feet in 2008, dropped to little more than $2 earlier this year before rebounding to about $3.50 recently.

The news for oil is also good, though less dramatic. U.S. oil production is expected to rise from 7.3 million barrels a day in 2010 to 10.3 million barrels a day in 2020. That should be enough to slash imports about two-thirds by 2035.

As welcome as the oil and gas boom is, it comes with an array of caveats. For one thing, it doesn’t portend a dramatic decline in gasoline prices. Oil is a world market, and demand is rising rapidly in developing nations such as China and India.

The increase in fossil fuel supplies also comes with potential serious environmental costs: Fracking, if not done carefully, can strain or contaminate water supplies. Lower prices for oil and gas can undercut progress toward clean-energy sources such as wind and solar. Moreover, greenhouse gases produced by burning fossil fuels remain a serious concern.

These hazards point to the need for careful oversight of fracking. Tight efficiency standards, combined with a continued push toward renewable energy, can also help curb demand. And for electricity production, natural gas can be a cleaner alternative to coal.

The unexpected oil and gas boom offers the United States a unique opportunity, but one that must be handled deftly, lest its benefits be squandered.